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I need help with this question (b), full detailed answer with examples, assumptions and explanation to argument point. Thanks! Here is the examiner's commentary to

I need help with this question (b), full detailed answer with examples, assumptions and explanation to argument point. Thanks! image text in transcribed
Here is the examiner's commentary to (b):
image text in transcribed
I tried qn(b), but I know my answer is not complete and not good enought to score full 10marks. Please help me with this question.
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(b) A stock you are valuing has substantial abnormal earnings at the start of the post horizon period. Explain in detail what assumptions you would make for the post horizon period and why. (10 marks) (b) This was about persistence and mean reversion, i.e. describing barriers to entry (of which there are many) and speculating about how long each of them might last. Palepu et al. is a good source. NO DATE Not Dona aboremai (b) A SO YOU Che voluing hos sustancia eonnings of the start of the post horizon period. Explain indehol What assumptions you would mdecor the post horizon period and winy (10 mans) be YOUR me abnormal caming valuation model is a mothod for determming a companys quity vanie based on both its book value and Hs earnings. Also known as the residual income model, it looks at whether manonement's olecisions will cause a company to pewrom botter at worse than orticipated variations on the post horizon period The model is used to forecast store stock prices and concludes that investors should pay more than book value for a stock if earnings are higher than expected and tess than book value if earnings are louer than expected The abrormal caming Vookon model is one of the spre a methods to estimate the vowe of stock or equity. There are two componente to equity value in the modera.company s bock value and the present value of future expected residual incomes The formula for the saker is simway to a discounted cash cow (DCF) approach, but instead of using a weighted average cost of capital (WACC) to calculate me och models discount rate, the Stream of residual incomes are discounted at the firm's cost of equity we ad room

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